Nifty Midcap150 Quality 50

What is NIFTY Midcap150 Quality50?

NIFTY Midcap150 Quality50 is a single-factor strategy index on the National Stock Exchange (NSE) that is designed to capture the performance of high-quality stocks across the mid cap segment. It is a diversified index of 50 stocks selected from the NIFTY Midcap 150 index, whose Quality Score is based on the past 5 years’ return on equity (ROE), financial leverage (excluding financial services companies), and earnings per share (EPS) growth variability.

These stocks span 13 sectors of the economy, which include Capital Goods, Healthcare, Chemicals, Financial Services, IT, Consumer Durables, Textiles, Automobile & Auto Components, Oil, Gas & Consumable Fuels, FMCG, Media, Entertainment & Publication, and Metals & Mining.

This NIFTY Midcap150 Quality50 index was launched on October 24, 2019, with the base date as April 1, 2005, and the base value at 1000. The NIFTY Midcap150 Quality50 share price since inception has breached the levels of 15,000 at ~25x P/E multiples. It is reconstituted on a semi-annual basis.

The NIFTY Midcap150 Quality50 index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. It is governed by a three-tier structure that comprises the BOD of NSE Indices, the Index Advisory Committee, and the Index Maintenance Sub-Committee.

This index is useful for launching index funds, ETFs, and structured products. It is also suitable for benchmarking fund portfolios by AMCs. It has an index variant in the form of NIFTY Midcap150 Quality 50 Total Returns Index.

How is NIFTY Midcap150 Quality50 Calculated? How Are Stocks Selected for Inclusion in NIFTY Midcap150 Quality50?

The NIFTY Midcap150 Quality50 share price is computed by factor tilt-weighting its 50 stocks based on Quality Scores on a real-time basis. This quality score is derived for each company from its Z score, which is based on return on equity, debt/equity ratio (excl. financial services companies) and earning per share (EPS) growth variability of the past 5-year period.

The latest ROE and D/E ratio figures are considered for the Z score calculation, while for 5-year period EPS, the growth variability is computed using adjusted EPS of the previous 6-year period.

Quality Score = (1+ Average Z score) if Average Z score >0 

                        (1-Average Z score) ^-1 if Average Z score < 0

Where; 

Weighted average Z score for Non-Financial Service sector company = 0.33 * Z score of ROE + 0.33 * - (Z score of D/E) + 0.33* - (Z score of EPS growth variability)

And,

Weighted average Z score for Financial Service sector company = 0.5 * Z score of ROE + 0.5*- (Z score of EPS growth variability)

The weights are based on Factor Tilt methodology and are capped at 5% or 5x the weight of the stock in the index based on float-adjusted market capitalisation. The weights are computed by multiplying the Quality Score of the stock with the square root of its free-float market capitalisation value.

To be inserted in the NIFTY Midcap150 Quality50 index, the companies must fulfil the following eligibility criteria:

1. It will be listed on the National Stock Exchange.
2. It will form a part of the NIFTY Midcap 150 index.
3. It will have a minimum listing history of 1 year.
4. Will include the securities that have undergone a scheme of arrangement, such as spin-offs, capital restructuring, etc., if they have traded for at least 12 calendar months before the cut-off date for index reconstitution.
5. Will exclude securities if they have negative EPS in any of the previous 6 financial years.
6. Will include newly listed securities if adjusted EPS data for the past 3 years is available.
7. Will compulsorily include the top 25 stocks ranked based on Quality Scores. 
8. Will compulsorily exclude the stocks that get ranked below 75 based on Quality Scores. 

The NIFTY Midcap150 Quality50 index is reviewed semi-annually based on six months of data in the months of June and December each year. Ad-hoc rebalancing may be undertaken in instances of suspension, delisting or scheme of arrangement.